FHA and Foreclosures help

6 Replies

Hello my name is Dave,

I recently got approved for a duplex in the amount of 170000, but its a little hard in my area of woonsocket ri. I was looking at some foreclosure properties, and the realtor trying to tell me I can't do FHA with a foreclosure, cause its sold as is. My question is wether or not this is true. She says I need to do a 203k, so with that can I still have no money down with FHA ? Any help would be greatly appreciated.

She is not wrong, but it sounds like she has conveyed it to you in a confusing manner.

FHA requires the appraiser to go out to the property and certify that it is habitable by FHA standards. IF there are ANY items that do not meet the FHA criteria, they are flagged as a condition. This means that they would have to be resolved prior to your occupancy. If the property is AS-IS, then that means that the Seller is not doing anything in the way of repairs. So, IF any repairs are required by FHA, you wouldn't be able to close on the property because your loan wouldn't fund without those conditions being cleared.

So, your agent is telling you that a foreclosure property, likely to have repairs required by FHA would not be a good idea because there is no way to clear those conditions.

On the flip side of what you are talking about, is the FHA 203K. This is a renovation loan where you package all of the rehab expenses into the loan and all the repairs and rehab items are completed by a contractor of your choosing after closing. The program sounds like a great option for a foreclosure property that needs repairs or rehab. However, you have to find a contractor willing to work with the program as they have to agree to NOT get paid until after the work is complete, and has been inspected by FHA.

Lastly, I want to address something you said that needs clarifying. You said, "She says I need to do a 203K, so with that, can I still have no money down with FHA?" WHAT?! FHA is not a 0 money down program, neither is the 203K. So, I am confused by your comments/question.

FHA requires 3.5% down, regardless of whether you use the traditional FHA program or the FHA 203K program.

So, unless you have a grant or some other combination program that provides your down payment for you, you will be required to put a minimum of 3.5% down.

Yes, if the condition and defect is mostly cosmetic you can. However, foundation, broken windows , electrical panel. Not sure about leaky roof.....  You need to pay for insurance part though.

Sam Shueh

@David Thibodeau

Hi David- a 203k is not difficult as long as you have the right team in place. An experienced lender, contractor and HUD consultant if needed but I would recommend using one regardless if the program requires it or not. He will help insure you are protected and that the work is properly scoped out. Creating your team upfront will help to make it a smoother process.

You will hear from others that the 203k takes long and is pain staking - that normally comes from not being prepared.  

Good luck and happy investing.  

PS- feel free to ask me any question you would like regarding FHA 203k or FannieMae Homestyle- I have been involved in over 1000 of them from the lending side over the years and happy to provide you guidance.